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Leadership And Culture At Airlines  
User currently offlineRankNfile From United States of America, joined Aug 2003, 4 posts, RR: 0
Posted (11 years 4 months 2 weeks 1 day 13 hours ago) and read 2512 times:

Here is an article from the website motleyfool.com about airlines. Any thoughts?
The reporter's email is at the bottom.

By Whitney Tilson
August 8, 2003
In recent columns, I've discussed how JetBlue's (Nasdaq: JBLU) low cost structure and outstanding customer service give it an edge over other carriers. At the root of both is JetBlue's corporate culture, which, nurtured properly, could provide an enormous long-term competitive advantage.

Two years ago, I addressed this topic in "Corporate Culture Impacts Profits:"
What is culture? The word has many definitions, but Merriam-Websters has the one I'm looking for: "The set of shared attitudes, values, goals, and practices that characterizes a company."

It's easy to think of companies -- Wal-Mart (NYSE: WMT), Home Depot (NYSE: HD), Starbucks (Nasdaq: SBUX), and Southwest Airlines (NYSE: LUV) come to mind -- with strong cultures. At such firms, I find, employees care about the company, each other, and customers. They share information and cooperate. They feel good about their jobs and are willing to go the extra mile.

I can't stress enough the importance of a strong culture in a tremendously labor- and service-intensive industry like the airlines. In the words of one long-time United Airlines (NYSE: UALAQ) pilot:

People can focus on CASM, RASM, yield, stage length, turns, you name it. The real reason things are going well at JetBlue, at least looking at it from the other side of the fence, is the human relations and values of management. Why are Southwest and JetBlue profitable, when much of the rest of the industry is unprofitable? There are many factors, but among the most overlooked are their motivated, passionate workforces. By focusing energy on their employees, Southwest and JetBlue may have found the secret ingredient to airline success.

The dysfunctional airline industry

I've studied countless industries in my career and have never encountered such awful labor-management relations and dysfunctional cultures as we find in the airlines (though steel is a close second). Stanford Business School Professor Jeffrey Pfeffer agrees, noting in a 1994 article:

In the United states, with few exceptions (Southwest and Delta being two), most airlines have followed practices with respect to their employees that are, for the most part, diametrically opposite of what would be required to achieve competitive advantage through people -- and this in a service industry.
One doesn't have to look far to find examples. Rick Dubinsky, until recently head of United Airlines' pilots' union and board member of UAL Corp., once wrote to his fellow pilots: "The forces marshalling against you [e.g., management] are deadly and determined. They are cold, calculating, powerful, well-schooled, professional, patient, and they do have endurance." He also famously quipped of his negotiating philosophy: "We don't want to kill the golden goose. We just want to choke it by the neck until it gives us every last egg."

Problems are not unique to United. A long-time pilot for Delta (NYSE: DAL), long regarded among the major carriers for its relationships with employees, wrote recently in a letter to an Atlanta newspaper: "How befuddling that a corporation would spend money to hire a consulting firm to improve its image with its employees. Seems like just treating the employees in a fair and honest manner would have accomplished the same thing. The Delta pilot group consists of about 90% former military officers. Rule one for an officer is that you take care of your troops before you take care of yourself."

And what did American Airlines (NYSE: AMR) do in April? At a time when the airline was hemorrhaging cash, CEO Don Carty called for "shared sacrifices" to avoid bankruptcy. Yet only days after the unions narrowly voted to accept $1.62 billion in annual concessions, they discovered that management had just paid itself large executive retention bonuses and pension protections. This unbelievable burst of insanity cost Carty his job and speaks to the "let's-look-out-for-ourselves-and-to-hell-with-the-employees" attitude that pervades the industry.

A good company
On a cross-country flight earlier this year, I had a long talk with a JetBlue flight attendant who used to work for United. She told me that while her base pay is lower, she makes it up by working overtime and participating in the stock purchase plan. She likes working for JetBlue because the company treats her well, she is already quite senior (meaning that she has her pick of routes), and her fellow flight attendants work as hard as she does.

By contrast, at United, she said relations with management were terrible, and she was often frustrated by burnt-out, unmotivated colleagues who -- knowing that their union would protect them -- were rude to passengers or simply sat at the back of the plane during the bulk of the flight. I also interviewed a JetBlue telephone reservations agent when I booked a flight a few weeks ago. She had been with JetBlue for a year and said "I enjoy working for them very much. The people are very nice. It's a good company with good benefits."

Cultural differences
When it comes to building and nurturing a strong corporate culture, there is no magic bullet -- rather, it depends on doing dozens of little things right every day. Here are the keys to JetBlue's success:

Culture begins with a set of values. Early on in the planning process, 20 members of JetBlue management met for two days and settled on five core values: safety, caring, integrity, fun, and passion. Today, JetBlue's web site notes, "These five values not only differentiate JetBlue's product; they result in a superior customer and crew member experience."

Leadership at the top is critical, and JetBlue's CEO David Neeleman is a master motivator. He takes every opportunity to acknowledge and thank his employees, reinforcing his words in the latest annual report: "At JetBlue, we operate under the belief that great People drive solid operating Performance which yields continued Prosperity. Our People are the foundation on which our success is built." Another time, he noted, "We didn't build our company on the backs of our people, and we never will. We will always put our people first, before our customers and our shareholders."

The rest of JetBlue management is on the same page. For example, President Dave Barger, who worked for Continental (NYSE: CAL) and New York Air and whose father was a United pilot, notes, "In this business you look at the landscape of shrapnel that's out there between labor and management, and if you can't learn from that, you're brain dead."

Neeleman and Barger attend most new employee orientation sessions, fly the airline frequently, help load baggage, take tickets, and so forth. Sure, much of this is public relations, but image matters.

JetBlue hires very carefully. With so many major carriers laying off tens of thousands of employees, JetBlue has the luxury of being extremely selective.
JetBlue is no doubt benefiting from the excitement and esprit de corps associated with a new, rapidly growing company. It will be a tremendous challenge to maintain this strong culture as JetBlue ages. Still, management provides the right incentives: JetBlue contributes 15% of its pre-tax income to a profit-sharing plan, which last year translated into a 15.5% bonus for all employees. In addition, there's a generous stock purchase plan, with nearly 70% participation overall, plus new pilots get 6,000 stock options.

Bringing it on home
Thinking about corporate culture might sound "touchy feely," but I would argue that few factors are more important to a company's -- and its stock's -- success. This is especially true in the airline industry, where a long-time pilot assures me, "network airlines like United and American have lost sight of the people behind the numbers. In a service industry, motivated employees can help generate a profit, while unmotivated employees can contribute to a loss."

In need of impassioned leadership to overcome an epidemic of low employee morale, too many major airlines focus on self-preservation rather than solid corporate vision. So long as they continue to do so, with each cultural misstep, Southwest, JetBlue, and others will gain market share, one dissatisfied customer at a time.

********************************************************
Whitney Tilson is a longtime guest columnist for The Motley Fool. He did not own shares of the companies mentioned in this article at press time, though positions may change at any time. Under no circumstances does this information represent a recommendation to buy, sell, or hold any security. Mr. Tilson appreciates your feedback at Tilson@Tilsonfunds.com. The Motley Fool is investors writing for investors.


6 replies: All unread, jump to last
 
User currently offlineMatt D From United States of America, joined Nov 1999, 9502 posts, RR: 47
Reply 1, posted (11 years 4 months 2 weeks 1 day 13 hours ago) and read 2484 times:

Excellent points. Although what was said is not just exclusive to the airline industry. Those principles can be applied to just about anywhere in the public sector. I read an article about Virgin Atlantic a few years back. To paraphrase what I read about Mr. Branson, his doctrine is as follows:

1. Take care of your employees. Make sure they are happy.

2. Take care of your customers. Which if your employees are happy, and feel like they are valued, they will respond in kind and take care of your customers.

3. Only after goals one and two are met do you worry about your shareholders interests. But as long as one and two are met, number three will fall into place by way of repeat business and referrals from your [satisfied] customers.


Sadly here in the US, it would appear that the opposite is true.

Way too many companies are "top heavy", or "all Chiefs and no Indians".

There really isn't any legitimate, profitable reason why any large company needs 14 layers of management, where 75% of the employees have "director", "lead", "supervisor", or "manager" in their title.


User currently offlineRipcordd From United States of America, joined Apr 2000, 1197 posts, RR: 1
Reply 2, posted (11 years 4 months 2 weeks 1 day 12 hours ago) and read 2465 times:

Yes most of the CEO's & flying public blame everything on the Unions we wouldnt need unions if the there more CEO'S like Neelman. Unions cause the airline to spend money on new planes only to get rid of them in a few years etc etc. Unions stand tuff for the most part against the airline because they are treated like crap treat me right and i will bend over backwards for you and your customers.

User currently offlineWestJetYYZ From , joined Dec 1969, posts, RR:
Reply 3, posted (11 years 4 months 2 weeks 1 day 10 hours ago) and read 2433 times:

This article certainly entails the sentiments brought up in the "What is it like to work for LCC" article a few days ago. And really hits on one of the major reason's it's great to work for a company like WestJet, or jetBlue or Southwest. If you really feel valued as an employee, and really feel connected to your company; then you will take care of that company, and it's customers. You're more willing as an employee to work harder, and save money. More willing to make sacrifices for the company. Not only that, but you can show up to work, and really have a good time, and trust your management. It really creates a harmony, and the teamwork really shows. This infections culture really makes it way down the customers in the end, because they l ike being a part of it too. Companies like these are really changing the way of running an organization, and treating your employees. Simple principle, take care of your employees, and they take care of you and your customers. In the end, takes care of the shareholders.

User currently offlineWorldTraveler From , joined Dec 1969, posts, RR:
Reply 4, posted (11 years 4 months 2 weeks 1 day 9 hours ago) and read 2410 times:

most of the LCC's do realize that one of the best ingredients to success in a service industry is to take care of the employees. Delta has stood out from the network carriers for their generally better treatment of employees but that has taken some well-published hits of late - perhaps because many of the execs. there are not from service industries and are DL outsiders.

The excitement that is generated by a startup can propel a company through many difficulties. Ultimately, employees at any company want to be paid like their peers at other carriers - which is precisely what WN is seeing. B6, F9, and FL can live on alot of excitement and promises of better days but WN's model is very stable and therefore their employees are wanting industry leading pay for industry leading profits. Some of that can come from stock options since WN stock is actually worth something - another unique point in the airline industry.

ultimately the strength of a service company comes from taking care of the employees and any of the network carriers that want to survive have to bake that into their business plan.


User currently offlineRankNfile From United States of America, joined Aug 2003, 4 posts, RR: 0
Reply 5, posted (11 years 4 months 2 weeks 7 hours ago) and read 2357 times:

I'm curious why the big 3 don't have better relations with their employees, if that is the successful way to go (JetBlue and Southwest)? Can anybody explain this to me. It seems like such a no-brainer that if you treat your employees right then they will give good service and the airline will make money. Why do the big airline management types antagonize their troops so much?



User currently offlineLuv2fly From United States of America, joined May 2003, 12150 posts, RR: 49
Reply 6, posted (11 years 4 months 2 weeks 3 hours ago) and read 2301 times:

RankNfile

There are so many possible reason to answer that question.

Some reasons, that they have grown so BIG that they truly lost touch with the workers.

As shown with Carty that upper management is only out for themselves.

Some will say that the LCC's cultures will fail once seniority starts happening, to that I say WN and over 30 years.

Some had that culture tho from growth, mergers and such it is no longer.

Some carriers never had it and it shows.

I am sure others will add more.

Good question and very thought provoking.



You can cut the irony with a knife
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